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<div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>Note 5. Income Taxes</b> </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> We are subject to income taxes in both the United States and the non-U.S. jurisdictions in which we operate. Certain of our entities are under examination by the relevant taxing authorities for various tax years. The earliest years that remain subject to examination by jurisdiction are: Chile —1993; U.S.— 1999; Mexico and Argentina —2004; Peru and Brazil — 2006; Luxembourg, Netherlands and Spain —2009. We regularly assess the potential outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of the provision for income taxes. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> The following table shows a reconciliation of our unrecognized tax benefits according to the FASB's authoritative guidance on accounting for uncertainty in income taxes, for the three months ended March 31, 2011 (in thousands): </div>
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<div style="text-indent: -15px; margin-left: 15px;">Unrecognized tax benefits — December 31, 2010</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">102,880</td>
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<div style="text-indent: -15px; margin-left: 15px;">Additions for current year tax positions</div></td>
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<td align="right">747</td>
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<div style="text-indent: -15px; margin-left: 15px;">Additions for prior year tax positions</div></td>
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<td> </td>
<td align="right">—</td>
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<div style="text-indent: -15px; margin-left: 15px;">Reductions for current year tax positions</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
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<tr style="background: #cceeff;" valign="bottom"><td>
<div style="text-indent: -15px; margin-left: 15px;">Reductions for prior year tax positions</div></td>
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<td nowrap="nowrap" align="left"> </td>
<td align="right">(70,653</td>
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<div style="text-indent: -15px; margin-left: 15px;">Lapse of statute of limitations</div></td>
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<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,392</td>
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<div style="text-indent: -15px; margin-left: 15px;">Settlements with taxing authorities</div></td>
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<td align="right">—</td>
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<div style="text-indent: -15px; margin-left: 15px;">Foreign currency translation adjustment</div></td>
<td> </td>
<td> </td>
<td align="right">2,400</td>
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<div style="text-indent: -15px; margin-left: 15px;">Unrecognized tax benefits — March 31, 2011</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">33,982</td>
<td> </td></tr>
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<div style="text-indent: 32px; font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; margin-left: 0%; font-size: 10pt; margin-right: 0%;" align="left">The unrecognized tax benefits as of March 31, 2011 and December 31, 2010 include $<font class="_mt">6.1</font> million and $<font class="_mt">75.7</font> million, respectively, of tax benefits that could potentially reduce our future effective tax rate, if recognized. During the first quarter of 2011, we reduced the amount of our unrecognized tax benefits by $<font class="_mt">72.0</font> million due to the March 2011 decision by a Mexico court to deny our administrative petition related to the Federal income tax law covering deductions and gains from the sale of property. </div>
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<div style="text-indent: 32px; font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; margin-left: 0%; font-size: 10pt; margin-right: 0%;" align="left">We record interest and penalties associated with uncertain tax positions as a component of our income tax provision. </div>
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<div style="text-indent: 32px; font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; margin-left: 0%; font-size: 10pt; margin-right: 0%;" align="left">We assessed the realizability of our deferred tax assets during the first quarter of 2011, consistent with the methodology we employed for 2010. In that assessment, we considered the reversal of existing temporary differences associated with deferred tax assets and liabilities, future taxable income, tax planning strategies and historical and future pre-tax book income (as adjusted for permanent differences between financial and tax accounting items) in order to determine if it is "more-likely-than-not" that the deferred tax asset will be realized. As a result of this assessment, we increased the valuation allowance on our U.S. companies' deferred tax assets by $<font class="_mt">19.0</font> million, which we recorded as an increase to income tax expense. For our foreign companies, we determined that the realizability of their deferred assets had not changed. We will continue to evaluate the amount of the valuation allowance for all of our foreign and U.S. companies throughout the remainder of 2011 to determine the appropriate level of valuation allowance. </div>
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<div style="text-indent: 32px; font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; margin-left: 0%; font-size: 10pt; margin-right: 0%;" align="left">During 2004, Nextel Mexico amended its Mexican Federal income tax returns in order to reverse a benefit previously claimed for a disputed provision of the Federal income tax law covering deductions and gains from the sale of property. We filed the amended returns in order to avoid potential penalties, and we also filed administrative petitions seeking clarification of our right to the tax benefits claimed on the original income tax returns. The tax authorities constructively denied our administrative petitions in January 2005, and in May 2005, we filed an annulment suit challenging the constructive denial. In March 2011, we were officially notified that the courts denied our petition based on the economic substance of our interpretation. Therefore, during the first quarter of 2011, we reversed the income tax receivable on the financial statements and recorded a $<font class="_mt">14.5</font> million increase in income tax expense with respect to this item.</div></div></div></div></div></div></div></div></div></div> </div>Note 5. Income Taxes
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